Risk/Reward Vol. 197
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm thankful/For the blessing
And the lessons that I've learned/With you by my side."---lyrics from "Thankful" sung by Kelly Clarkson
"Now the race is on/And here comes Pride up the back stretch
Heartache is goin' to the inside/My Tears are holding back"---lyrics from "Race Is On" by The Grateful Dead
"Bend me/Shape me/Anyway you want me
You got the power/To turn on the light."---lyrics from "Bend Me, Shape Me" sung by American Breed
This is my favorite holiday; one dedicated to family, food, football (as a Packer fan, not so much)---and reflection on the blessings bestowed upon Barb and me, most recently the birth on November 19th of our sixth grandchild, John Frederick Roberts. Believe me when I say that "I'm thankful/For these blessings." I am also thankful that I live in a time of such marvelous technology. Think about it for a moment. We have access to more information sitting on our duffs than any person could have dreamed imaginable a few short years ago---even if that person were sitting at the Library of Congress. Moreover, by virtue of the internet, we are able to blog, tweet, post and otherwise communicate with so many so quickly. In that regard, I am thankful "for the lessons that I've learned/With you by my side." May the future bring us all many more blessings, and the wisdom to appreciate them as they unfold.
On Wednesday, Howard Marks about whom I wrote last week, published another memo; this one entitled "The Race Is On". (To access it, click on this link and then go to Memos from our chairman http://www.oaktreecapital.com/ ) I recommend it to your attention. In it he compares his current sense-of-the-times to that expressed in a previous memo also entitled "The Race Is On" which he wrote in February, 2007, before the mortgage meltdown and the ensuing crash. He draws many parallels and sides with Mark Twain concluding that while history does not actually repeat itself-- "it does rhyme." According to Marks, when prudence is abandoned for enhanced returns, and "Pride is coming up the back stretch", surely "Heartache is goin' to the inside." In words that struck too close to home, Marks noted that "Investors that used to get 6% from Treasurys have turned to high yield bonds for such a return." Marks does not believe that now is time for "tears" or for selling for that matter, but in his opinion, most asset classes are now fully priced and that deploying any new money into the markets at this stage should be done with great caution.
I translate Mark's words to mean that now more than ever I need to be nimble. My early warning signal remains the yield on the 10Year Treasury Bond, which has been volatile of late, and which closed the week at 2.74%. If and when that yield rises, fixed income assets (which I have already pared) will fall in value, and it is likely that soon thereafter most other financial assets will stumble . Although I have not matched the returns experienced by those that have simply riden the stock indices upward this year, I am thankful that I have been able to surpass my annual goals with what I perceive to be considerably less risk. Perhaps my biggest challenge this year has been resisting the temptation to chase the market especially with the knowledge, in hindsight, that had I done so I would have achieved much, much better returns. However, I can not and will not allow market chatter to "bend me/shape me/anyway it wants me." I "got the power" to "turn on the light" or to turn it off. I must use that power if and when necessary to minimize the risk of loss, which is my paramount responsibility at this stage in my life.
Holy Kelly Clarkson! I just re-read what I wrote above, and it reads like "Mr. Know It All" is depressed, on the "Dark Side", if you will. Sure, I am disappointed that my returns are only half of what the indices have achieved, but anyone who has been in the market at all this year objectively should rejoice in "Moments Like This." My angst is not about past performance, but about the future and whether to preserve my gains, I should be "Already Gone."
Saturday, November 30, 2013
Saturday, November 23, 2013
November 23, 2013 High Hopes
Risk/Reward Vol. 196
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Baby you're a firework/Come on let your colors burst
Make 'em go "Oh, oh oh."
You're gunna leave 'em fallin' down-own-own."---lyrics from "Fireworks" sung by Katy Perry
"Cause he had high hopes/He had high hopes
He had high apple pie in the sky hopes."---lyrics from "High Hope" sung by Frank Sinatra
"One minute you laugh
The next minute you're slowly sinking into something black"--lyrics from "One Minute" sung by Kelly Clarkson
With the Dow Jones Industrial Average now above 16,000, many commentators question whether stocks are overpriced. Are equities like a "firework" with their "colors about to burst" from green to red? Will some event such as a tapering of the Federal Reserve's QE3 program "Make investors go 'Oh, oh oh", and "leave 'em fallin' down-own- own"? Someday likely, but many advise that that time has not yet arrived. Analysts such as Change Wave Investing's Josh Levine cite the price/earnings metrics devised by recent Nobel laureate Robert Shiller and conclude that although Shiller's adjusted S&P 500 p/e for this week is on the high side historically speaking (24.5 times compared to a 130 year average of 16.5x), it is significantly lower than during the dot.com bubble (44x) or in 2007 (28x). Levine counsels caution, but warns against panic, a sentiment shared by such luminaries as Mohammed El Erien and Jeremy Grantham.
A similar conclusion has been reached by Oaktree Capital Managment Chairman Howard Marks (a personal favorite, see Vol. 173 http://www.riskrewardblog.blogspot.com/ ) who looks to investor confidence for signals. It is his belief that when stock buyers have "high hopes/high apple pie in the sky hopes", prudent investors should be terrified, citing the dot.com bubble and 2007 as well. That said, he does not see the current bull market as motivated by overconfidence, but rather by low interest rates created by the monetary policies of the world's central banks (e.g. QE3). In the short run, he is steady-as-she-goes, counselling that when there is nothing clever to do, the mistake lies in trying to be clever. He advises caution; do nothing too drastic or too bold. And then there is another favorite of mine, David Tepper (Vols. 59 and 170 www.riskrewardblog.blogspot.com ) whose only fear is that he is not long enough in equities.
So we watch for signals. A favorite place for signals is found in the minutes of the Federal Reserve's Open Market Commitee, the entity that will decide the future of QE3. Many in the market live or die on them. "One minute they laugh/The next minute they sink" Talk about "sinking", look what happened on Wednesday. By mid morning the DJIA had once again crested above 16,000 and the 10 Year Treasury Bond yield was bobbing at 2.7%. With the afternoon release of the FOMC minutes, which were interpreted to mean that QE3 tapering could begin before an improvement in the unemployment numbers, the DJIA plummeted more than 100 points and the 10Year yield spiked to 2.8%. Quite a reaction to a few carefully chosen words! Can you imagine the upheavel if and when real action on QE3 is taken? Over the next two days, the stock indices recovered nicely, but the yield on the 10Year remained stubbornly high closing the week at 2.75%. This fact reinforced the wisdom of my decision to pare my interest rate sensitive holdings (e.g. mREIT's, BCC's and preferred stock closed end funds). Remember: when analyzing bond sensitive assets, the higher the yield the lower the price.
What's not to love about this market? Seven weeks---seven record closes! Like Ol' Blue Eyes, should we just continue "Taking A Chance On This Love" or is this a case in which "Fools Have Rushed In Where Wise Men Never Go"? It sure looks like we are on "The Sunny Side of the Street", but, Frank-ly, attaining record highs on lackluster economic news and lukewarm corporate guidance leaves me mostly "Bewitched, Bothered and Bewildered."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Baby you're a firework/Come on let your colors burst
Make 'em go "Oh, oh oh."
You're gunna leave 'em fallin' down-own-own."---lyrics from "Fireworks" sung by Katy Perry
"Cause he had high hopes/He had high hopes
He had high apple pie in the sky hopes."---lyrics from "High Hope" sung by Frank Sinatra
"One minute you laugh
The next minute you're slowly sinking into something black"--lyrics from "One Minute" sung by Kelly Clarkson
With the Dow Jones Industrial Average now above 16,000, many commentators question whether stocks are overpriced. Are equities like a "firework" with their "colors about to burst" from green to red? Will some event such as a tapering of the Federal Reserve's QE3 program "Make investors go 'Oh, oh oh", and "leave 'em fallin' down-own- own"? Someday likely, but many advise that that time has not yet arrived. Analysts such as Change Wave Investing's Josh Levine cite the price/earnings metrics devised by recent Nobel laureate Robert Shiller and conclude that although Shiller's adjusted S&P 500 p/e for this week is on the high side historically speaking (24.5 times compared to a 130 year average of 16.5x), it is significantly lower than during the dot.com bubble (44x) or in 2007 (28x). Levine counsels caution, but warns against panic, a sentiment shared by such luminaries as Mohammed El Erien and Jeremy Grantham.
A similar conclusion has been reached by Oaktree Capital Managment Chairman Howard Marks (a personal favorite, see Vol. 173 http://www.riskrewardblog.blogspot.com/ ) who looks to investor confidence for signals. It is his belief that when stock buyers have "high hopes/high apple pie in the sky hopes", prudent investors should be terrified, citing the dot.com bubble and 2007 as well. That said, he does not see the current bull market as motivated by overconfidence, but rather by low interest rates created by the monetary policies of the world's central banks (e.g. QE3). In the short run, he is steady-as-she-goes, counselling that when there is nothing clever to do, the mistake lies in trying to be clever. He advises caution; do nothing too drastic or too bold. And then there is another favorite of mine, David Tepper (Vols. 59 and 170 www.riskrewardblog.blogspot.com ) whose only fear is that he is not long enough in equities.
So we watch for signals. A favorite place for signals is found in the minutes of the Federal Reserve's Open Market Commitee, the entity that will decide the future of QE3. Many in the market live or die on them. "One minute they laugh/The next minute they sink" Talk about "sinking", look what happened on Wednesday. By mid morning the DJIA had once again crested above 16,000 and the 10 Year Treasury Bond yield was bobbing at 2.7%. With the afternoon release of the FOMC minutes, which were interpreted to mean that QE3 tapering could begin before an improvement in the unemployment numbers, the DJIA plummeted more than 100 points and the 10Year yield spiked to 2.8%. Quite a reaction to a few carefully chosen words! Can you imagine the upheavel if and when real action on QE3 is taken? Over the next two days, the stock indices recovered nicely, but the yield on the 10Year remained stubbornly high closing the week at 2.75%. This fact reinforced the wisdom of my decision to pare my interest rate sensitive holdings (e.g. mREIT's, BCC's and preferred stock closed end funds). Remember: when analyzing bond sensitive assets, the higher the yield the lower the price.
What's not to love about this market? Seven weeks---seven record closes! Like Ol' Blue Eyes, should we just continue "Taking A Chance On This Love" or is this a case in which "Fools Have Rushed In Where Wise Men Never Go"? It sure looks like we are on "The Sunny Side of the Street", but, Frank-ly, attaining record highs on lackluster economic news and lukewarm corporate guidance leaves me mostly "Bewitched, Bothered and Bewildered."
Saturday, November 16, 2013
November 16, 2013 On Top Of The World
Risk/Reward Vol. 195
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sitting on top of the world,
Just rolling along
Just rolling along"---lyrics from "I'm Sitting On Top of the World" sung by Al Jolson
"Trickle, trickle/Splash, splash
Tell me how long/Will this rain last?"---lyrics from "Trickle, Trickle" by Manhattan Transfer
"Lightening up/While you still can
Don't even try to understand
Just find a place to make your stand
And take it easy."---lyrics from "Take It Easy" by The Eagles
WOW! Another record breaking week! Anyone invested in a stock index fund is truly "sitting on top of the world." And it all happened in the absence of any significant news. Very little economic data issued and the much anticipated Congressional testimony of Janet Yellen, the Federal Reserve chair-nominee, went as expected. Each day seems to bring a new high---"Just rolling along/Just rolling along." How long will it last?
It is beyond dispute that one, perhaps THE, major driver of appreciating stock prices is QE3. In the Review and Outlook section of Friday's Wall Street Journal (WSJ), the editors predicted that the Federal Reserve under Janet Yellen's leadership would not end QE3 any time soon because Ms. Yellen believes that monetary policy can impact entire business cycles. In the words of PIMCO's Bill Gross, Ms. Yellen holds fast to the idea that supplying cheap money at the top of the financial food chain (QE3) will cause prosperity to trickle down to the middle class through full employment. Does it or does QE3's cheap debt merely finance huge stock repurchase programs which primarily serve to enrich those at the top, in a not-so virtuous circle? Don't get me wrong---we, as stockholders, have benefitted from this circle, at least so far. But as former Fed member Kevin Warsh noted in Wednesdays' WSJ, QE3 remains a giant experiment in "Trickle, trickle, splash splash." (I suggest you read this thought provoking piece which can be found here (http://online.wsj.com/news/articles/SB10001424052702304655104579165781051413674 ) According to Warsh, QE3's continued efficacy is questionable, and no one knows what will happen once the Fed stops raining easy money. Only one thing is for certain, QE3 will stop sometime---even Ms. Yellen stated so this week. I just want someone to "Tell me how long/Will this rain last."
I took advantage of the new highs and the moderation in interest rates this week to "Lighten up/While I still can" on many of my preferred stock closed end funds and my mortgage real estate investment trusts which will be adversely impacted should tapering of QE3 begin in mid December. If you have not followed my previous discourse on the relationship between QE3, interest rates on the 10 Year Treasury Bond and the performance of these sectors, then "Don't even try to understand" why I sold them. Let's just say that having collected several months of outsized dividends, I "found a place to take my stand" this week. In regard my other investments, I am holding tight and smiling like the rest of you. I have not redeployed the cash I raised, however. Instead, I'm "takin' it easy" for now.
These past few weeks have been like an Eagles concert. Every day, the stock markets "Take It To The Limit." Stock picking has become a "Life In the Fast Lane." Right or wrong, I have not chased those lofty stock index returns in recent days. I am happy with my year to date performance. After all, I am in for the "Long Run". The one thing I want to avoid at this stage is a "Heartache Tonight.".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sitting on top of the world,
Just rolling along
Just rolling along"---lyrics from "I'm Sitting On Top of the World" sung by Al Jolson
"Trickle, trickle/Splash, splash
Tell me how long/Will this rain last?"---lyrics from "Trickle, Trickle" by Manhattan Transfer
"Lightening up/While you still can
Don't even try to understand
Just find a place to make your stand
And take it easy."---lyrics from "Take It Easy" by The Eagles
WOW! Another record breaking week! Anyone invested in a stock index fund is truly "sitting on top of the world." And it all happened in the absence of any significant news. Very little economic data issued and the much anticipated Congressional testimony of Janet Yellen, the Federal Reserve chair-nominee, went as expected. Each day seems to bring a new high---"Just rolling along/Just rolling along." How long will it last?
It is beyond dispute that one, perhaps THE, major driver of appreciating stock prices is QE3. In the Review and Outlook section of Friday's Wall Street Journal (WSJ), the editors predicted that the Federal Reserve under Janet Yellen's leadership would not end QE3 any time soon because Ms. Yellen believes that monetary policy can impact entire business cycles. In the words of PIMCO's Bill Gross, Ms. Yellen holds fast to the idea that supplying cheap money at the top of the financial food chain (QE3) will cause prosperity to trickle down to the middle class through full employment. Does it or does QE3's cheap debt merely finance huge stock repurchase programs which primarily serve to enrich those at the top, in a not-so virtuous circle? Don't get me wrong---we, as stockholders, have benefitted from this circle, at least so far. But as former Fed member Kevin Warsh noted in Wednesdays' WSJ, QE3 remains a giant experiment in "Trickle, trickle, splash splash." (I suggest you read this thought provoking piece which can be found here (http://online.wsj.com/news/articles/SB10001424052702304655104579165781051413674 ) According to Warsh, QE3's continued efficacy is questionable, and no one knows what will happen once the Fed stops raining easy money. Only one thing is for certain, QE3 will stop sometime---even Ms. Yellen stated so this week. I just want someone to "Tell me how long/Will this rain last."
I took advantage of the new highs and the moderation in interest rates this week to "Lighten up/While I still can" on many of my preferred stock closed end funds and my mortgage real estate investment trusts which will be adversely impacted should tapering of QE3 begin in mid December. If you have not followed my previous discourse on the relationship between QE3, interest rates on the 10 Year Treasury Bond and the performance of these sectors, then "Don't even try to understand" why I sold them. Let's just say that having collected several months of outsized dividends, I "found a place to take my stand" this week. In regard my other investments, I am holding tight and smiling like the rest of you. I have not redeployed the cash I raised, however. Instead, I'm "takin' it easy" for now.
These past few weeks have been like an Eagles concert. Every day, the stock markets "Take It To The Limit." Stock picking has become a "Life In the Fast Lane." Right or wrong, I have not chased those lofty stock index returns in recent days. I am happy with my year to date performance. After all, I am in for the "Long Run". The one thing I want to avoid at this stage is a "Heartache Tonight.".
Saturday, November 9, 2013
November 9, 2013 Hats Off
Risk/Reward Vol. 194
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
'Hats off to Larry/It may sound cruel
But you laughed at me when you
Said we were through."---lyrics from "Hats Off to Larry" sung by Del Shannon
"Is this a lasting treasure/Or just a moment's pleasure
Can I believe the magic of your sighs
Will you still love me tomorrow?"---lyrics from "Will You Still Love Me Tomorrow" sung by Ben E. King
"Why do we never get an answer
When we're knocking at the door
With a thousand million questions
About hate and death and war?"---lyrics from "Question" by the Moody Blues
"Hats off to Larry" and every other Tom, Dick and Harry who chose to invest in passive stock index funds this year. The Dow Jones Industrial Average (DJIA) is up 19% year to date and the S&P 500 (S&P) is up 22.5%. Deservedly, stock index investors can "laugh at me" because my active approach has reaped a much smaller return. And as for the really smart guys---those that run hedge funds---according to Hedgeweek, they have averaged a mere 5.7% return through the first three quarters of the year. "It may sound cruel", but those that predicted that the days of outsized stock index returns "were through" have been proven wrong.
But, is a strategy based upon stock index investing "a lasting treasure/Or just a moment's pleasure?" "Can you believe the magic ?" Lest we forget, despite both returning roughly 20% so far this year, the DJIA and S&P have averaged only a 7.5% return over the past 10 years---and with a great deal of volatitliy (remember Spring, 2009?) Moreover, in the past few weeks we have received mixed signals as to future returns---even from the same sources. Last week, Larry Fink, the CEO of BlackRock the largest asset manager in the world ($4Trillion!) warned that stock investors are exhibiting unwarranted exuberance and that the stock market in general is becoming an asset bubble (a sentiment shared by IBD in this Thursday's edition). At the same time, BlackRock published a report (www.blackrock.com/investor ) suggesting that the average investor may be overly cautious because 48% of his/her investable assets currently are in cash; inferring that considerable fuel for across the board stock price appreciation has yet to be deployed. Please, cut the double talk, just answer the question, "Will stocks still love me tomorrow?"
"Why do we never get an answer/When we're knocking at that door?" It's just one question on a single topic; not "a thousand million questions/About hate and death and war." Perhaps the best response is found in two axioms uttered by the Wizard of Omaha, Warren Buffett:
1)"Be fearful when others are greedy, and greedy when others are fearful."
2)"Interest rates are to asset prices like gravity is to the apple. When interest rates are low there is little gravitational pull on asset prices."
As shown by recent record highs in the stock indices, stockholders are greedy; so some level of fear is warranted. Thus, I keep my eye on interest rates. On Friday a better than expected jobs report resulted in the DJIA reaching another record high. But, that same report resulted in the rate on the 10 Year Treasury note jumping, to 2.75%. It is my belief that if interest rates continue to rise, their gravity will pull stock prices down. We shall see.
Index investing has been a runaway success so far this year. But, like Del Shannon, I question whether, longer term, index investing might be "A Little Town Flirt." If interest rates spike, "I wonder where she will stay/My little runaway--run, run, run, run, runaway."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
'Hats off to Larry/It may sound cruel
But you laughed at me when you
Said we were through."---lyrics from "Hats Off to Larry" sung by Del Shannon
"Is this a lasting treasure/Or just a moment's pleasure
Can I believe the magic of your sighs
Will you still love me tomorrow?"---lyrics from "Will You Still Love Me Tomorrow" sung by Ben E. King
"Why do we never get an answer
When we're knocking at the door
With a thousand million questions
About hate and death and war?"---lyrics from "Question" by the Moody Blues
"Hats off to Larry" and every other Tom, Dick and Harry who chose to invest in passive stock index funds this year. The Dow Jones Industrial Average (DJIA) is up 19% year to date and the S&P 500 (S&P) is up 22.5%. Deservedly, stock index investors can "laugh at me" because my active approach has reaped a much smaller return. And as for the really smart guys---those that run hedge funds---according to Hedgeweek, they have averaged a mere 5.7% return through the first three quarters of the year. "It may sound cruel", but those that predicted that the days of outsized stock index returns "were through" have been proven wrong.
But, is a strategy based upon stock index investing "a lasting treasure/Or just a moment's pleasure?" "Can you believe the magic ?" Lest we forget, despite both returning roughly 20% so far this year, the DJIA and S&P have averaged only a 7.5% return over the past 10 years---and with a great deal of volatitliy (remember Spring, 2009?) Moreover, in the past few weeks we have received mixed signals as to future returns---even from the same sources. Last week, Larry Fink, the CEO of BlackRock the largest asset manager in the world ($4Trillion!) warned that stock investors are exhibiting unwarranted exuberance and that the stock market in general is becoming an asset bubble (a sentiment shared by IBD in this Thursday's edition). At the same time, BlackRock published a report (www.blackrock.com/investor ) suggesting that the average investor may be overly cautious because 48% of his/her investable assets currently are in cash; inferring that considerable fuel for across the board stock price appreciation has yet to be deployed. Please, cut the double talk, just answer the question, "Will stocks still love me tomorrow?"
"Why do we never get an answer/When we're knocking at that door?" It's just one question on a single topic; not "a thousand million questions/About hate and death and war." Perhaps the best response is found in two axioms uttered by the Wizard of Omaha, Warren Buffett:
1)"Be fearful when others are greedy, and greedy when others are fearful."
2)"Interest rates are to asset prices like gravity is to the apple. When interest rates are low there is little gravitational pull on asset prices."
As shown by recent record highs in the stock indices, stockholders are greedy; so some level of fear is warranted. Thus, I keep my eye on interest rates. On Friday a better than expected jobs report resulted in the DJIA reaching another record high. But, that same report resulted in the rate on the 10 Year Treasury note jumping, to 2.75%. It is my belief that if interest rates continue to rise, their gravity will pull stock prices down. We shall see.
Index investing has been a runaway success so far this year. But, like Del Shannon, I question whether, longer term, index investing might be "A Little Town Flirt." If interest rates spike, "I wonder where she will stay/My little runaway--run, run, run, run, runaway."
Saturday, November 2, 2013
November 2, 2013 Sounds of Silence
Risk/Reward Vol. 193
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"People hearing without listening
People writing songs that voices never share
And no one dared
Disturb the sound of silence."---lyrics from "Sounds of Silence" by Simon and Garfunkel
"Jam up and jelly tight
My, my, my baby
Now you're outta sight."---lyrics from "Jam Up and Jelly Tight" by Tommy Roe
"I am he/As you are he
And you are me
And we are all together
I am the Eggman/They are the Eggmen
I am the Walrus/Goo goo g-joob"---lyrics from "I Am the Walrus" by The Beatles
When the Federal Reserve Open Market Committee (FOMC) issued its press release on Wednesday, each phrase was parsed and each word analyzed in search of any clue as to when quantitative easing (QE3) would be tapered. Commentators noted that the FOMC omitted a reference to a concern over increased interest rates, a concern which had been discussed in previous releases. Immediately, the bond and stock markets were "disturbed by the sound of this silence." "Without listening", "people heard" from the silence the threat of QE3 tapering earlier than anticipated. And "no one dared" to challenge this interpretation. As a consequence, the price of bonds dropped (as indicated by the rise in the yield on the 10 Year Treasury Bond) and the stock market fell from its QE3 infused record high on Tuesday. The stock market recovered somewhat on Friday, but the 10 Year continued to sell off on the heels of an upbeat ISM number (which further fueled fears of a sooner-than-expected QE3 tapering) ending the week at a yield of 2.62%---not good news for income investors like me.
Have you noticed declines in both the price of domestic oil and the price of gasoline? These declines are a direct result of increased domestic oil production and world wide refining capacity. The U S is now producing 7.9 million barrels of crude oil per day which by law cannot be exported.. As a consequence stockpiles of crude at Cushing, OK (a pipeline hub at which domestic prices are determined) are increasing which in turn is causing the price of domestic crude (WTI) to fall in comparison to crude's international price (Brent). Brent oil is in short supply due to Libyan production declines and supply problems in Nigeria. In other words, domestically, crude is "Jammed up" while internationally it is "Jelly tight." . "My, my, my." The price of WTI for December delivery is $96-97 per barrel while the price of Brent is "outta sight" at $109-110 per barrel. Meanwhile, the price of gasoline (which U.S. producers CAN export) is falling because worldwide refining capacity is increasing at the same time world wide demand is waning. Someday the U.S. will have a comprehensive energy policy which will accommodate the sea change which has arisen from our new found domestic production; a policy which will allow the export of crude (and LNG and other products). But, don't look for such a policy not under this administration. Meanwhile, I still like oil stocks even if they are underperforming the market (except LINE which jumped 11% on Friday on news that its merger with BRY may actually occur).
Disappointing third quarter results from mortgage real estate investment trust ("mREIT"), AGNC, reverberated throughout the entire mREIT market early in the week. Despite the fact that AGNC faces unique issues, its performance tainted everyone. Truly ,in the mREIT world "I am he/As you are he/And you are me/And we are all together." I am still far ahead with my investment in MTGE, but it took a hit despite reporting a good quarter. It trades well below its book value which is a common metric for determining the price of an mREIT stock. Apparently, when it comes to mREITs, the market cannot tell the difference between the Eggman and the Walrus. Goo goo g'joob, indeed!
Although both the Dow Jones Industrial Average and the S&P 500 reached record highs this week, I am contemplating raising cash. I find very little in this market to "Please, Please Me." I study it "Eight Days A Week", and yet my studies do not "Help" me overcome a feeling that "It Won't Be Long, Yeah" before "I'm a Loser, " a "No Where Man" if you will. Financially I'm up, but confidence-wise "I'm Really Down" due largely to the prospect of rising interest rates. Then again, perhaps my funk is just the realization that investing is "A Long and Winding Road" , that none of us can afford to just "Let It Be," and that, in the end, most of our profits go to the "Taxman."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"People hearing without listening
People writing songs that voices never share
And no one dared
Disturb the sound of silence."---lyrics from "Sounds of Silence" by Simon and Garfunkel
"Jam up and jelly tight
My, my, my baby
Now you're outta sight."---lyrics from "Jam Up and Jelly Tight" by Tommy Roe
"I am he/As you are he
And you are me
And we are all together
I am the Eggman/They are the Eggmen
I am the Walrus/Goo goo g-joob"---lyrics from "I Am the Walrus" by The Beatles
When the Federal Reserve Open Market Committee (FOMC) issued its press release on Wednesday, each phrase was parsed and each word analyzed in search of any clue as to when quantitative easing (QE3) would be tapered. Commentators noted that the FOMC omitted a reference to a concern over increased interest rates, a concern which had been discussed in previous releases. Immediately, the bond and stock markets were "disturbed by the sound of this silence." "Without listening", "people heard" from the silence the threat of QE3 tapering earlier than anticipated. And "no one dared" to challenge this interpretation. As a consequence, the price of bonds dropped (as indicated by the rise in the yield on the 10 Year Treasury Bond) and the stock market fell from its QE3 infused record high on Tuesday. The stock market recovered somewhat on Friday, but the 10 Year continued to sell off on the heels of an upbeat ISM number (which further fueled fears of a sooner-than-expected QE3 tapering) ending the week at a yield of 2.62%---not good news for income investors like me.
Have you noticed declines in both the price of domestic oil and the price of gasoline? These declines are a direct result of increased domestic oil production and world wide refining capacity. The U S is now producing 7.9 million barrels of crude oil per day which by law cannot be exported.. As a consequence stockpiles of crude at Cushing, OK (a pipeline hub at which domestic prices are determined) are increasing which in turn is causing the price of domestic crude (WTI) to fall in comparison to crude's international price (Brent). Brent oil is in short supply due to Libyan production declines and supply problems in Nigeria. In other words, domestically, crude is "Jammed up" while internationally it is "Jelly tight." . "My, my, my." The price of WTI for December delivery is $96-97 per barrel while the price of Brent is "outta sight" at $109-110 per barrel. Meanwhile, the price of gasoline (which U.S. producers CAN export) is falling because worldwide refining capacity is increasing at the same time world wide demand is waning. Someday the U.S. will have a comprehensive energy policy which will accommodate the sea change which has arisen from our new found domestic production; a policy which will allow the export of crude (and LNG and other products). But, don't look for such a policy not under this administration. Meanwhile, I still like oil stocks even if they are underperforming the market (except LINE which jumped 11% on Friday on news that its merger with BRY may actually occur).
Disappointing third quarter results from mortgage real estate investment trust ("mREIT"), AGNC, reverberated throughout the entire mREIT market early in the week. Despite the fact that AGNC faces unique issues, its performance tainted everyone. Truly ,in the mREIT world "I am he/As you are he/And you are me/And we are all together." I am still far ahead with my investment in MTGE, but it took a hit despite reporting a good quarter. It trades well below its book value which is a common metric for determining the price of an mREIT stock. Apparently, when it comes to mREITs, the market cannot tell the difference between the Eggman and the Walrus. Goo goo g'joob, indeed!
Although both the Dow Jones Industrial Average and the S&P 500 reached record highs this week, I am contemplating raising cash. I find very little in this market to "Please, Please Me." I study it "Eight Days A Week", and yet my studies do not "Help" me overcome a feeling that "It Won't Be Long, Yeah" before "I'm a Loser, " a "No Where Man" if you will. Financially I'm up, but confidence-wise "I'm Really Down" due largely to the prospect of rising interest rates. Then again, perhaps my funk is just the realization that investing is "A Long and Winding Road" , that none of us can afford to just "Let It Be," and that, in the end, most of our profits go to the "Taxman."
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